THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JACK CAFFERTY, CNN ANCHOR: If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile and look for yours there among hundreds of others -- Suzanne. SUZANNE MALVEAUX, CNN HOST: All right.

Jack, thanks so much.

You're in THE SITUATION ROOM.

Happening now, breaking news. Russia halts its attacks on Georgia, at least officially. But the crisis is far from over. We are on the scene. The Pentagon watching all of it very carefully, weighing options for asserting its presence in the region while not inflaming Russia.

And a devastating picture of death and suffering now emerging from the fighting zone -- the human toll from days of fighting.

Wolf Blitzer is off.

I'm Suzanne Malveaux.

And you're in THE SITUATION ROOM.

We are following breaking news. A day of fast-moving changes in the conflict between Russia and Georgia. Among the latest developments, Russian President Dmitry Medvedev says Russia has halted military operations in Georgia. And in a meeting with French President Nicolas Sarkozy, the Russian leader agreed to a six part peace plan.

But Georgian officials say bombing and shelling continue.

Also, a massive show of support in the Georgian capital, Tbilisi. Thousands of people turned out for a rally, where President Mikheil Saakashvili says he has designated Russian peacekeepers in disputed South Ossetia as occupying forces.

And the first indication of the deadly toll of the fighting -- a Russian diplomat tells CNN as many as 2,000 people may have been killed.

Let's go live to the Georgian capital, Tbilisi. Our CNN senior international correspondent, Matthew Chance, is there -- Matthew, tell us what is happening now.

MATTHEW CHANCE, SENIOR INTERNATIONAL CORRESPONDENT: Well, it's very quiet right now. But across the country, there's a certain amount of tension in Georgia, even though that Moscow has declared an end to its military operations against this tiny former Soviet republic.

Some of the areas in the country are still very, very dangerous to go to. There's been a big rally in Tbilisi tonight, the Georgian capital, a show of solidarity for the government and for the president, Mikheil Saakashvili. But, again, elsewhere it's very tense, indeed.

We traveled to one of the most tense areas, the town of Gori, very close to the main combat zone of South Ossetia. And we found a place virtually deserted with very fresh scars from battle.

(BEGIN VIDEOTAPE)

CHANCE: We're on the main road driving into Gori and there's virtually nobody around. Yesterday, this road was full of thousands of Georgian forces moving out of the city. And now you can see they've left some of their vehicles abandoned on the side of the road in the panic of withdrawing from what they believed was a Russian advance.

This looks like it's been hit by an air strike. It's an armored personnel carrier. You can see it's been totally, totally gutted by the strike. It must have been absolute carnage.

(VIDEO CLIP)

CHANCE: Yesterday, an airplane came and bombed it.

(VIDEO CLIP)

CHANCE: It was a Russian airplane. Well, this is the main square in Gori. You can see there's a big statue of Stalin, who was born here. It's also the main gathering point of a town which has come under frequent attacks over the course of the past week or so, since these hostilities with Russia broke out.

You can see just over here, only this morning there was an air strike on Gori, even after the thousands of Georgian troops that were garrisoned here had left. It seems to be the crater from some kind of rocket that was fired here. And, in fact, there are craters all over this square from the air strikes. They caused quite a lot of damage to the surrounding buildings, as you can see.

This is a fire that's been started apparently by that rocket that landed here earlier on this morning.

People in there are trying to fight the flames in their homes, but, of course, the city is abandoned. There's no fire brigade here anymore. And so they're having to do it themselves by climbing up there and trying to save whatever of their belongings they can. You see the rocket?

This is it. This is part of the bomb. That's Russian letters.

So you're saying it was definitely a Russian bomb that was dropped.

(VIDEO CLIP)

CHANCE: I mean it was her house that was hit by this -- by this incendiary bomb, whatever it was. She told me that she doesn't really know what's going to happen to her now. But, you know, clearly, she's not the only one who is in an incredibly desperate position as a result of this bitter conflict.

Well, even after an end to the hostilities between Georgia and Russia, there are still reports from around this country of sporadic clashes between Georgian and Russian forces. And so there's still a great deal of tension in Georgia this evening -- Suzanne.

MALVEAUX: And, Matthew, we've heard so many conflicting reports about the number of people who were injured, wounded, who have been killed.

What have you actually seen?

Have you come upon many people who have been hurt in this conflict?

CHANCE: Yes, we've certainly come across a lot of Georgians here, on this side of the conflict zone, who have been injured. A lot of reports of people being killed, as well. In fact, I was at a military hospital yesterday in Gori, that town where that report was just from. And the hospital, at that time, before it was evacuated by the military, was really teeming with soldiers that had come back from the front line injured. There were lists of them -- several hundred of them, their names listed on the wall outside as either dead or injured.

As for these claims by the Russians and the South Ossetians that as many as 2,000 people were killed in the hostilities, well, it's just very impossible for us at this point to verify those figures until we're actually on the ground.

MALVEAUX: Matthew Chance, thanks for bringing those real human -- the home toll to this story, those personal stories. And please be safe.

Thank you.

The conflict is especially troubling for the U.S. military, but leaders are formulating a plan.

CNN Pentagon correspondent Barbara Starr joining us live -- Barbara, what are you picking up there? BARBARA STARR, PENTAGON CORRESPONDENT: Well, Suzanne, what we're learning is that the chill with U.S./Russian military relations is not likely to melt any time soon. But the U.S. military is forging ahead with some new ideas.

(BEGIN VIDEOTAPE)

STARR (voice-over): U.S. Air Force C-17s are expected to begin flying into Georgia, carrying relief supplies, according to U.S. officials. But the Pentagon wants Russian assurances it won't challenge the U.S. military presence.

It's a frosty day for U.S./Russian military relations. The U.S. may send the hospital ship USNS comfort to the Black Sea to offer humanitarian relief to Georgia, knowing full well Russia has a cordon of nearly 20 warships waiting there.

The strategy is all about reasserting the U.S. presence in Georgia in the face of the Russian offensive. About 70 U.S. military trainers are in the country and they will stay.

Pentagon spokesman Geoff Morrell told reporters that, "removing them would inadvertently send a signal that the U.S. is abandoning Georgia, which we are not."

That training program is the linchpin of U.S. military support. The U.S. has trained Georgians in counter-insurgency and counter- terrorism operations, but not for the type of assault Russia inflicted. Any new U.S. military support will have to keep Georgia in check.

CHARLES KUPCHAN, COUNCIL ON FOREIGN RELATIONS: Once the dust settles, the U.S. relationship with Georgia will continue, military to military cooperation. But I think the U.S. will be much more careful about restraining Georgia and making sure that this kind of escalation does not occur again.

STARR: Russia already is signaling it doesn't welcome the U.S. strategy of showing its face in Georgia.

UNIDENTIFIED MALE (THROUGH TRANSLATOR): Many years we've been warning of the danger of arming Georgian leadership. We drew attention of our U.S. partners to the fact that their program of arming and training of the Georgian Army...

(END VIDEO TAPE)

STARR: But as another kind of U.S. displeasure, the U.S. Navy is planning to cancel participation in a U.S./Russian naval exercise off Russia's Pacific Coast that was scheduled for the coming days -- Suzanne.

MALVEAUX: Thank you, Barbara Starr, very much.

And Jack Cafferty in New York joining us now with The Cafferty File -- Jack, what are you seeing? BLITZER: Suzanne, if you feel like you've got a little change left in your jeans after filling up at the pump these days, it's not your imagination. Gas prices have actually fallen 26 days in a row.

AAA puts the national average now at $3.80 a gallon. Gas prices have dropped more than 7 percent since hitting a record high of $4.11 last month. However, prices are still a buck more than they were a year ago.

The almost month long decline in gas prices has come as oil has also fallen from a record high of $147 a barrel. Good news, this is, for the average consumer. A new Gallup Poll suggesting Americans have become more optimistic about gas prices as they continue to drop. Last month, 90 percent of those surveyed said gas prices would be higher by the end of the year. Now that percentage has dropped by more than half, to just 40 percent, which is a large change in opinion for just one month's time.

Also, just 16 percent of Americans now think gas prices will increase by a lot by the end of the year, compared to 52 percent who felt that way just a month ago.

Gallup has also found that Americans' views about the economy are not quite as gloomy lately. Seventy-three percent of Americans rate the current conditions as either fair or poor -- and that's a lot of people. But it's down from 83 percent who felt this way a month ago.

So here's the question -- have 26 days in a row of falling gas prices improved your outlook?

MALVEAUX: Well, some of the stories that we are working this hour, House Speaker Nancy Pelosi apparently softening her hard-line on offshore drilling.

Also, how a bacteria that, in some forms, may be deadly to humans, but it might actually become a source of fuel.

And it's the hottest ticket of the convention -- it's actually supposed to be free, but guess how much people are willing to pay to hear Barack Obama?

Find out ahead.

(COMMERCIAL BREAK)

MALVEAUX: Soaring energy costs have put a spotlight on the issue of offshore oil drilling. Many experts say it would have minimal impact on prices. But there are some Republicans, including presidential candidate John McCain, that are demanding that Congress act. And now Democrats may actually be softening their opposition.

Carol Costello is following that story -- Carol, House Speaker Nancy Pelosi -- I don't know, this kind of looks like a flip-flop.

CAROL COSTELLO, CNN CORRESPONDENT: Some people say it does look like a flip-flop. She's actually softening her stance. But there are those who wonder if it's all part of a political game at a time voters are demanding answers to high gas prices.

(BEGIN VIDEOTAPE)

SEN. JOHN MCCAIN (R), PRESUMPTIVE NOMINEE: Thank you. It's fine.

COSTELLO (voice-over): Score one for John McCain. All that taunting actually worked.

MCCAIN: Come back off your vacation. Go back to Washington and fix our energy problems and drill and drill now. Drill offshore and drill now.

COSTELLO: He was at it again today.

And why not?

The Democrats have flip-flopped, compromised or pulled a bit of political trickery, depending on how you look at it.

House Speaker Nancy Pelosi now following Barack Obama's lead by saying she would consider allowing Congress to vote on offshore drilling when it reconvenes.

(BEGIN VIDEO CLIP FROM "LARRY KING LIVE")

LARRY KING, HOST: Would you vote yes on a package that includes drilling?

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: I would not -- it depends on how the drilling is put forth.

(END VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESUMPTIVE NOMINEE: Like all compromises, this one has its drawbacks.

(BEGIN VIDEO CLIP FROM "LARRY KING LIVE")

PELOSI: It depends on how that is proposed.

(END VIDEO CLIP)

OBAMA: It does include a limited amount of new offshore drilling.

(BEGIN VIDEO CLIP FROM "LARRY KING LIVE")

PELOSI: We can get some great things in terms of renewable energy resources...

(END VIDEO CLIP)

COSTELLO: President Bush definitely saw it as political trickery.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The Democratic leadership should bring up a clean bill, give the members a chance to vote up or down on whether or not we should proceed with offshore drilling and not insert any legislative poison pills.

COSTELLO: But others say the Democrats are sincerely compromising because the people have spoken. According to a CNN/Opinion Research poll, 69 percent are in favor of offshore drilling.

MARK PRESTON, CNN POLITICAL EDITOR: It doesn't matter what your position was three weeks ago as long as your position today is the right position.

COSTELLO: Even some environmentalists say they're willing to accept some offshore drilling if Republicans will compromise on conservation measures.

TIM GREEFF, NATIONAL LEAGUE OF CONSERVATION VOTERS: What Speaker Pelosi is doing is actually legislating and avoiding this political sideshow that the Republican leadership has been putting forth.

COSTELLO: But Republicans say if Nancy Pelosi was really sincere about legislating, she'd come back from vacation, call a special session and get it done.

(BEGIN VIDEOTAPE)

COSTELLO: I should add, just a couple of months ago, John McCain also opposed offshore drilling. The big difference here, he got in front of the issue before the Democrats did. And, bingo, it resonated with voters.

MALVEAUX: So we still have a little bit of time left, because they're on recess. They'll come back and we'll figure out how all this is going to work out.

COSTELLO: Yes, maybe.

MALVEAUX: OK. Thanks, Carol.

To the presidential campaign trail now. CNN's Election Express is traveling from Washington to Denver to the Democratic convention later this month.

Well, our own Tom Foreman, he's on the bus. He's talking to voters along the way.

Today, he is in the key battleground state of Ohio -- Tom -- he is obviously looking at the flavor and the color of what's going on and some of the issues that they're focusing on -- hey, Tom, how you doing? TOM FOREMAN, CNN CORRESPONDENT: And enjoying being here in -- well, I'm good and I'm enjoying being here in Toledo, right across the river from where they're building the new stadium for the Mud Hens. The folks here love their sports. But one of the biggest games in town this year has been the presidential race. And both candidates are really playing hard in Ohio.

(BEGIN VIDEOTAPE)

MCCAIN: And I think that Ohio is going to be a battleground state. I have to campaign hard here. I have to work hard here.

FOREMAN (voice-over): And both John McCain and Barack Obama are working overtime to win Ohio's 20 electoral votes, campaigning here again and again.

OBAMA: Thank you, all.

FOREMAN: George W. Bush narrowly took the state eight years ago and his two point victory in Ohio four years ago sealed the deal for his re-election.

This time around, it looks like another close call, with the latest state polls showing a statistical dead heat between McCain and Obama.

OBAMA: We can open the door to a new economy for the 21st century that will bring new energy, new jobs and new hope to Berea and communities across Ohio.

FOREMAN: Both candidates are speaking out about the economy because it is issue number one with voters here.

UNIDENTIFIED MALE: The cost of food has gone up big time.

UNIDENTIFIED FEMALE: And, of course, the economy is horrible. And I don't think it's going to take -- I don't think any one person is going to be able to turn that around.

UNIDENTIFIED MALE: I actually laid off some people, cut the wait staff, cut the cook, cut the dishwasher. And I'm putting more hours in myself. It's a family business. You've got to do it in order -- anything you can in order to stay alive.

(END VIDEO TAPE)

FOREMAN: That's what we're hearing from almost every voter we talked to in this state. The simple truth is, for all the economic problems that America is having, Ohio is having them worse. It had so much unemployment here -- it's at a 15-year high -- there's talk about the unemployment funds running out by the end of the year. Big worries here and a lot of people are waiting for the candidates to come through with some sort of big clear plan to convince them to get their votes, so maybe they can fix the economy -- not immediately, but sometime in the near future. MALVEAUX: Tom, great to hear directly from the voters on that very important issue. I'm kind of jealous of that assignment there, the Election Express. You got a chance to talk to some, folks.

So we'll get back to you in a bit.

FOREMAN: Come out and join us. We're having a good time.

MALVEAUX: OK.

Free tickets for Barack Obama's acceptance speech in Denver were snapped up last week within 24 hours. Now people are turning to the Web to try to get their hands one.

Our Internet reporter, Abbi Tatton, has been watching this -- and, Abbi, how much are the tickets now going for?

ABBI TATTON, CNN INTERNET REPORTER: Suzanne, $3,600 is the current bid on the Web site viagogo.com for a pair of these tickets to the Barack Obama acceptance speech. Bear in mind, that's $3,600 for free tickets to the speech. It's going to be held at INVESCO Field. It seats about 80,000 people on this date. But, the thing is, 100,000 people have already asked for these tickets. And that demand is leading people to go and make appeals like this online. On Craigslist: "Wanted -- four tickets to the Obama speech. Top dollar paid."

Convention officials say that they bare clamping down on these online sellers, going after the people -- pursuing them -- that are selling these tickets for the inflated prices.

A spokesperson said that it's absurd that people are selling these online because the actual physical tickets haven't even been handed out yet. And she points out that these tickets also have a bar code that can be deactivated if they want to, if they spot them being sold online.

So if you want one, there is a wait list. The thing is, there's about 20,000 people ahead of you.

MALVEAUX: Oh, my goodness.

OK, Abbi.

Thanks again.

Potentially unlimited fuel -- no drilling required.

How could bacteria solve our gas crunch?

Plus, the uproar over a police beating. We have the surveillance tapes.

(COMMERCIAL BREAK)

MALVEAUX: I want to take you directly to an event that is happening in Georgia, the capital of Georgia, Tbilisi. That is where we are hearing from the presidents of Georgia, as well as France, talking about a potential deal here -- a peacekeeping deal between Russia and Georgia.

Let's take a quick listen.

PRES. MIKHEIL SAAKASHVILI, GEORGIA (THROUGH TRANSLATOR): ...where people are accused of outside killing and of executions of innocent civilians there. And I have made mention a few days of carpet bombardment in the town of (INAUDIBLE). And, certainly, this is an extremely difficult humanitarian situation, as well as I just referred to media reports. I don't know -- I don't have any verification from our own people, but in the town of Gori, the -- something that is classified as a weapon of mass destruction, a missile Escander (ph), was utilized against a civilian object -- a hospital, unheard of in international practice and in very bad practice of wars.

So that's where we are right now. We've been getting different indications and the reports of ethnic cleansing in Upper Abkhazia, from which the whole population was thrown out, a number of people killed and reports of different attacks in Western Georgia by the troops that (INAUDIBLE).

Now with regards to these documents, there are several things there. First of all, I agree with everything that President Sarkozy said. This document has clear indications that -- I mean there should be a cease-fire. There should be separation of parties. And there should be internationalization of the process.

What it clearly says, that internationalization of the security process, which is to say the -- you know, there's temporary arrangements for now, but later it should be replaced by an international process with the participation of the E.U., the U.N.. And the only point there which where we and the point that concerns peacekeepers we have to underline, it's about this opposition. And I think on that we agree, because there is another question with so- called peacekeepers in Abkhazia.

But here, we are talking about South Ossetia and the proximity of (INAUDIBLE) cannot be interpreted as a way (INAUDIBLE) of Western Georgia and say blow up the ships in the port of Poti or blow up the oil terminal in Kolevi (ph).

B, we are talking about the -- we -- the last point was, that was already leaked to the press somehow, because I saw it on the site of "Liberacion" -- was the fact, the point that the future status of Abkhazia and South Ossetia should be discussed in an international process. And that has been deleted with the agreement with us and the Russians and the French side because there were different interpretations. And we don't want to leave any doubt. And I think President Sarkozy agrees with that, the territorial and belonging of South Ossetia to Abkhazia and to Georgia can never be under doubt under any kind of international process. This is out of question.

And that's exactly, I think, what we agreed on. And that was deleted. But with regard to security arrangements, again, I welcome that we would -- that we will still have an international process for that. We want an international process for security arrangements that would enable us to get over the issues that are out there.

It's absolutely clear for us that bombing of the territory of Georgia should cease. I have to say that in the second half of the day today, there was some kind of less activity in terms of aerial flights. However, there was much more activity in terms of rampages and incidents of ethnic cleansing and undermining of, you know -- and going after civilians. And that's an extremely worrisome development.

What we have to clearly obtain at this stage is cessation of hostilities and a withdrawal of all occupational forces. And a temporary arrangement with the peacekeepers is fine, but then internationalization of the processes and that's the commitment of sides if we agree.

With that respect -- and I have to underline, of course this is a political document, but we mean it if general principles are there. We need legal details. We need a Security Council resolution. And we need the -- we need the specification. And we need -- also need more presence on the ground of international observers and the whole internationalization of the process.

So we are dealing with an extremely precarious situation right now, with something that was unimaginable here just a few days ago. This is worse than even what happened in Abkhazia in '92 and '93, when almost half a million people were thrown out from there. It's -- there are not -- we don't have the same number of people here, but we have a big humanitarian disaster those -- where the people are. And we need to stop. We absolutely need to stop.

MALVEAUX: The U.S. has much at stake in the conflict, which is taking a serious toll on relations between Washington and Moscow.

CNN's State Department correspondent, Zain Verjee, has that part of the story -- Zain, obviously, this is a six point plan. What it doesn't deal with is Georgia's territorial integrity, actually, its sovereignty itself.

But you've been following this. Explain for our viewers really what we're dealing with.

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Right.

Just a short while ago, two senior administration officials say that the U.S. and its allies have said to Russia that they can't stay in Georgia. Russia is saying that it really has no intention of doing that.

Let's take a minute and just take a look at what Russia has, in fact, done on the ground.

This is Georgia. That's the capital, Tbilisi. There are two pro- Russian regions, South Ossetia and Abkhazia. They really want to break away from Georgia.

What happened was, was that the Russians came in and went straight into those areas. And what's happened -- and this is what took everyone by surprise -- is that they went in deeper than anticipated into Georgia. This is where the Russian positions are now. And these are the areas where there has been a significant flash point.

Now, if you take a look over here, at the Black Sea, you can see the Russians have taken their troops through and deployed them by ship as well. What we want to do now is just to take a look and see some of the frustrations the Russians have had with the Americans.

(BEGIN VIDEOTAPE)

VERJEE: Russia's letting the world know it's in charge of its immediate neighborhood. Pounding U.S. allied Georgia. But Russia's foreign minister accused secretary of state Condoleezza Rice for misleading president Bush by claiming Russia wanted to overthrow the Georgian president.

UNIDENTIFIED MALE (through translator): This is totally irresponsible to mislead the leadership of a powerful country about the true intentions of Russia. We have no plans to throw down any leadership.

VERJEE: From Russia's point of view, the U.S. support for Georgia is a direct threat to its influence. Washington, which holds Georgia up as a symbol for democracy, is pushing for it to join the NATO club. Russia's sending a signal to its former soviet republics, like Ukraine or Moldova.

UNIDENTIFIED FEMALE: If I were a neighbor of Russia and I saw what Russia had done to Georgia, I would be very nervous. I think those countries that are leaning towards the west are very nervous today.

VERJEE: Another poke in Russia's eye, America's missile defense plans in Poland and the Czech Republic. That's making Russia feel encircled. A long-standing point for Vladimir Putin, the U.S. backing for Kosovo's independence.

UNIDENTIFIED FEMALE: I think this is in part payback for Kosovo. The international community recognized the independence of Kosovo, and Russia wanted similar status for South Ossetia and Abkhazia.

VERJEE: The Russians think those two pro-Russian regions should be able to break away from Georgia.

(END VIDEOTAPE)

VERJEE: We're learning now that the U.S. and its allies are considering moves to diplomatically isolate and punish Russia for its actions really saying it's not business as usual.

The U.S. boycotted meetings between Russia and NATO and officials are telling us, Suzanne, that they are considering kicking Russia out of the G-8.

SUZANNE MALVEAUX, CNN ANCHOR: What kind of leverage does the Bush administration actually have in this situation?

VERJEE: Well a lot of experts have said you know what? The Bush administration really does not have a lot of leverage. They really can't do anything. The Russians have basically decided to ignore things but one official told us a short while ago that the Russians really want on be part of the international community. They want to be on the international stage, and it's really important for them to be part of a group like the G-8.

MALVEAUX: Zain Verjee, thanks, good reporting.

The conflict is taking a devastating toll on many of Georgia's 4 million people.

CNN's Brian Todd is following that part of the story.

Brian, how bad is it?

BRIAN TODD, CNN CORRESPONDENT: Well, Suzanne, we've spoken to some major relief groups today who tell us the chaos on the ground and in many areas that they still can't get to. That plus the different accounts from the two different governments of wounded, dead, and displaced means this crisis may not be sorted out for some time.

(BEGIN VIDEOTAPE)

TODD: In the city of Goria near the Georgian region of South Ossetia where the fight been has been so intense, a woman sums it up as she walks out her bombed-out apartment building.

UNIDENTIFIED FEMALE (through translator): It is burning and everything is burning out.

TODD: Inside the breakaway region of Georgia, a woman walks what's left from her apartment and then realizes her prized possessions are lost.

TODD: Others are huddled in cellars, using candles to find where they stored their food. One talks about the choice between staying hunkered down or leaving her home.

UNIDENTIFIED FEMALE (through translator): It was very frightening to leave. I thought my baby would be fired at on the road. It was better to be burned down here than burned alive on the streets.

TODD: On the streets, confirmation of how it was so dangerous. A woman can only cry as a soldier places a loved one's body into a van. Ambulances seemed in short supply. The wounded held in cramped private cars. Officials from Georgia, Russia, and the U.N. say thousands have been killed and the number of displaced now exceeding 100,000 is a humanitarian nightmare. During the fighting, some walk wearily from their towns carrying what they could. Others sped past burning tanks and cars. This sequence showing the dangers of that.

By many accounts, this was a sloppy confrontation. The destruction, indiscriminate on both sides. In one Georgian village, even a summer kids' camp wasn't spared.

UNIDENTIFIED MALE (through translator): Why are they killing our children? I think they do not know what they are doing. This is a youth camp. It is not militarily or strategically important. You can see that they are dropping bombs.

(END VIDEOTAPE)

TODD: And even though we're told the Russians have called a halt to the fighting, getting help to many of these people is a huge problem. We spoke to an official at the International Red Cross who said they still don't have access to much of the South Ossetia region where a lot of the fighting took place.

Suzanne?

MALVEAUX: So Brian, the fact that you have lack of access, really how much do we know about the extent of people displaced or wounded?

TODD: You're not going to get a full accounting of that for some time. U.N. officials tell us they are still trying to account for people, but one of them said yesterday they estimated 80 percent of that residents of the city of Gori had fled the city, so you have to find out where many of them went, catch up with them and see if they have relatives dead or missing. And it's trying to account for the people and who they have lost along the process will take days if not weeks.

MALVEAUX: A very difficult situation. Thanks for following that, Brian Todd.

Military personnel returning from combat in Iraq and Afghanistan are bringing back terrifying memories of war and serious drinking problems. Chief medical correspondent, Dr. Sanjay Gupta, is standing by with just-released results from a new study.

And could Russia's military action in Georgia have an impact on oil supplies?

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Our Carol Costello is monitoring the stories incoming to THE SITUATION ROOM right now.

Carol, what are you looking at?

CAROL COSTELLO, CNN CORRESPONDENT: Well, Suzanne, Taliban insurgents claim responsibility for the bombing of a Pakistani air force truck which killed at least 12 people. Local police say a 5- year-old girl in a nearby vehicle was among the dead. Taliban says the attack is in retaliation for a Pakistani military offensive, in a northwest tribal area which has killed dozens.

First, a Florida cop turned in his badge. Now two others have been fired after this video showed him beating a suspect. The West Palm Beach man suffered a broken jaw and bruised eyes in the May incident. He was arrested for alleging robbing a pharmacy of hundreds of oxycontin pills. The officers said they were suspending themselves after the suspect tried to bite and spit at them.

The lawyer for a Boston man accused of kidnapping his daughter says his client now admits knowing a California couple who disappeared back in 1985 but not very well. The lawyer previously said the mystery man, Clark Rockefeller, didn't remember anything before 1993. Rockefeller is being investigated in the disappearance of the couple. Los Angeles police believe Rockefeller is really a German man who has gone by several aliases.

Less work equals more savings and happy students. That's what a Florida community college is finding out by switching to a four-day workweek. Brevard community college was able to save more than $225,000 and add more faculty with a shorter week. The college president says, now students don't have to worry about skipping Friday classes. Although they may go on, Suzanne, to skipping Thursday classes.

MALVEAUX: All right, a lot of classes, Friday classes, we may have missed, Carol.

COSTELLO: Yeah, yeah, I'll admit.

MALVEAUX: A few. All right, thanks, Carol.

An extra dose of outrage over those new baggage fees some airlines are charging. It turns out no one is exempt, not even troops that are heading off to war.

Our CNN's Deborah Feyerick is on the story for us.

And Deborah, what are you hearing about this?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well you know Suzanne, this is a policy that airlines have had in place for a couple years but with rising fuel costs and airlines cutting back, there's greater urgency that troops have to shell out money adding to their worries.

(BEGIN VIDEOTAPE)

FEYERICK: Are U.S. soldiers setting off for war paying extra to take their kit with them? One staff sergeant leaving San Antonio for Ft. Worth was charged 100 bucks for checking a third bag. And the Veterans of Foreign Wars Organization is worried the practice may spread. And now airlines are feeling the pinch.

JOE DAVIS, VETERANS OF FOREIGN WARS: What we want to do is nip it in the bud to exempt the military personnel that are traveling under orders from having to pay for the third bag.

FEYERICK: Joe Davis says soldiers don't have the time or money to be worrying about claiming baggage expenses.

DAVIS: You have a family at home and you stand at that airline counter and you have three bags in your hand, they say you can't get on board unless you pay $100 upfront, what are you going to do? These troops are going to war and there's a lot more on their mind than having to worry or try to remember to get $100 reimbursement before they go into a war zone.

FEYERICK: Veterans of Foreign Wars sent a letter to the aviation industry asking that U.S. troops be exempt from any extra baggage fees.

American Airlines and others reached by CNN defend the practice, saying troops are allowed heavier and bigger bags and can check two for free, unlike commercial travelers. An American Airlines' spokesman tells CNN, troops are allowed 190 pounds each, free of charge and that, "If they pay, they get reimbursed, so at the end they don't pay a dime."

Vouchers authorizing extra baggage are usually issued by the military prior to a flight and the reimbursement is likely pending approval. As with any business expense, it is not guaranteed.

The group representing airlines says it supports the troops, but that baggage policy is, "Made independently by the individual airline." It has no plans to ask for an "across the board" waiver for U.S. service members.

(END VIDEOTAPE)

FEYERICK: Now, many airlines waived some or all excess baggage fees for military members traveling on official order, but for those who don't, the Department of Defense says they are reimbursable if authorized on the travel order, so, it's really like any business traveler.

Suzanne?

MALVEAUX: OK. Thank you, Deborah.

Just released, disturbing results from a study on alcohol in National Guard and reserve troops back from Iraq and Afghanistan. Researchers say they face a 60 percent greater risk of developing a drinking problem than their peers who weren't deployed.

CNN's chief medical correspondent, Dr. Sanjay Gupta, joining us live.

Sanjay, you have been following this. Obviously, there are a lot of people concerned about this study.

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: Yeah, I think people have associated drinking and drinking heavily with one of the ramifications of war. But we're starting to get a better idea of who is most at risk. For example, people who have seen physical abuse, people who have seen death, people who have seen maiming, all of that's going to be problematic in the long run in terms of overall drinking problems.

But I think what's most interesting is you can figure out who is most at risk. For example, National Guard, reserves are at very increased risk. Young people are at increased risk and we're starting to see how much of a problem it is.

For example, take a look at some of the numbers here. Overall, if you look at how many people are drinking and how heavily they're drinking, 26 percent are binge drinkers, for example. 9 percent of people actually drinking heavily every week, 7 percent of those people having weekly related problems. So, that's obviously much higher numbers than in the general population.

Keep in mind as well, Suzanne, what's so interesting here is that people may use this alcohol to self-medicate, because they have seen the atrocious things on the front lines. A lot of the National Guard troops, they have not been trained to actually be able to deal with some of the images they are suddenly confronted with. These are people who are lawyers, doctors, have other jobs and suddenly they're thrust into situations.

And finally people are just doing this because they're not quite sure how to handle the situation overall, so we're getting a better idea who they are and how profound the problem is.

MALVEAUX: We've heard a lot about posttraumatic stress disorder from people who are coming back and they've been deployed and obviously exhibiting a lot of stress. Is this whole drinking a part of a signal, a sign of what's to come next?

GUPTA: You know, I think that's a very interesting question because posttraumatic stress disorder is so stigmatized even in the military. So people are reluctant to go to their doctors and say, look, this is bothering me. I'm having trouble with this.

What may be a better forerunner is alcoholism. If doctors start to say, look, there is someone that didn't drink heavily before and now they are drinking, this could be a real sign that maybe this is someone who needs to be looked into for PTSD as well.

This is complicated and this is the first time this generation is looking at the problem the way it is. But alcohol and wars have gone together as far back as we can remember and now we have a way to look at who is at risk.

MALVEAUX: It's good that we have this information. Thank you.

GUPTA: Thanks Suzanne. MALVEAUX: No drilling required. Could a tiny microbe help solve America's energy problems? We're going to take a look at that.

And a group of MIT. Students have figured out how to ride on Boston's subway systems for free. We'll tell you how they did it and what a judge has to say.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

MALVEAUX: Soaring energy costs and Americans' dependence on foreign oil are big problems. But the key to one possible solution is very small.

Our CNN chief technology correspondent, Miles O'Brien, explains.

(BEGIN VIDEOTAPE)

MILES O'BRIEN, CNN CHIEF TECHNOLOGY CORRESPONDENT: It's like an oil field on a microscope slide. These tiny bacteria are making diesel fuel. No drilling required. What do we see? This is fuel here.

STEPHEN DEL CARDAYRE, LS9, INC.: These are the E. coli cells that are converting the sugar and secreted out the oil.

O'BRIEN: Steven Del Dardayre is the leading researcher with a company called LS9 that is harnessing E. coli to make fuel. All you have to do is feed the bacteria.

It doesn't have to be corn?

DEL CARDAYRE: You can use corn. You can use sugarcane. Wheat will work.

O'BRIEN: In short, they aren't picky eaters. They eat sugar and they eat sugar, digest and then expel petroleum waste. Del Cardayre and his team have genetically engineered these tiny oil makers to create diesel because it's the easiest fuel to make, but E. coli could make other fuels as well.

What is the catch?

DEL CARDAYRE: No catch. We've genetically engineered E. coli to make fuel that can be used in existing infrastructure.

O'BRIEN: That is a key point. LS9's E. coli diesel can be mixed in with traditional fossil fuels.

Ethanol is so corrosive it cannot be sent through existing pipelines but can an army of microbes really make a difference? Bob McCormick is a government expert on biofuels.

ROBERT MCCORMICK, NATL. RENEWABLE ENERGY LAB: If you've got something that you can make work in a test tube, that's good, but you've got to be able to make it work on a very large scale, to have an impact on our petroleum imports.

O'BRIEN: At LS9, they are ramping up as fast as they can, separating oil and water. They hope to be making millions of gallons a week in the next few years.

Is it possible to say we could grow our way out of our dependence on oil?

DEL CARDAYRE: I doubt we're going to completely eliminate our dependence on oil but we'll certainly be able to wean ourselves of complete dependence.

O'BRIEN: That is, once they get the bugs out.

Miles O'Brien, CNN, South San Francisco, California.

(END VIDEOTAPE)

MALVAEUX: Time now to check back in with Jack Cafferty.

Jack?

JACK CAFFERTY, CNN CORRESPONDENT: The question is this, Suzanne. He have 26 days in a row of falling gas prices improved your outlook any?

Jenna writes from Roseville, California, "No. Falling gas prices are due to Americans reducing their demand because they cannot afford the high prices. When Americans start to feel comfortable again and start to consume more, the prices will spike again."

Rob in Florida says, "Now people can save money when they have to drive to the unemployment office to get their check."

Norman in Maryland says, "Why should it? We went back to sleep after the gas crisis in 1974. Sheer stupidity. Are we dumb enough to do it again?"

Chris in New Jersey says, "No, rising gas prices actually improved my outlook because they would finally force our country to do the right thing and develop real alternatives. I'm looking forward to November 5th, when prices start going up again, the day after the election. $5 a gallon gas is music to my ears."

Hank in California, "Unlike all the cynics who have written in, I'd like to say yes. My outlook has improved somewhat. If gas prices continue to fall as they have for the past three weeks, I can get back to driving my H2 again, guilt free."

Derick in New York says, "Yes, gas prices fell but it's only because China took about a billion cars off the Beijing roads for the Olympics. Give it a week."

Fred says, "Yes, it thrills me to death to pay $3.85 a gallon versus $4.25."

And Linda in Pennsylvania, "It's wonderful. What will I do with all that extra cash? Maybe I'll splurge and go buy a gallon of milk."

If you didn't see your e-mail here, go to my blog at CNN.com/Caffertyfile and look for yours there among hundreds of others.

Suzanne?

MALVAEUX: All right. A very popular topic. Thanks, Jack.

Are democrats flip-flopping on offshore drilling? Lou Dobbs is standing by to weigh in.

Plus, why a judge cancels a student presentation at a hacker convention.

(COMMERCIAL BREAK)

MALVAEUX: Priests, they're in short supply in the Catholic Church, even more so in the military. Why not serve both? The military says life on the battlefield is a natural path to the priesthood.

CNN's Dan Lothian explains.

(BEGIN VIDEOTAPE)

DAN LOTHIAN, CNN CORRESPONDENT: They served their country. Now Father John McLaughlin says they have what it takes to serve god.

REV. JOHN MCLAUGHLIN, ARCHDIOCESE OF THE MILITARY: They are people that have understood sacrifice, and that live every day sacrificing.

LOTHIAN: So he's recruiting U.S. troops to become priests.

MCLAUGHLIN: Some people at the end of their career, when their time is up, but there are some people that are thinking about interrupting the service.

LOTHIAN: Like Father Darin Colarusso who took that leap of faith. Was it that difficult a leap?

REV. DARIN COLARUSSO, FORMER AIR FORCE NAVIGATOR: For me it wasn't. The military actually prepares you for the subordination of your own desire.

LOTHIAN: Father Colarusso, who is now a priest at this parish outside Boston, spent a dozen years on active duty in the air force.

COLARUSSO: I was a weapons systems officer. I was a back seater.

LOTHIAN: That was your life.

COLARUSSO: I was happy doing that, absolutely.

LOTHIAN: God, he says, has other plans.

COLARUSSO: If the call is from god the only answer is yes.

LOTHIAN: Father McLaughlin is trying to help troops follow a commitment to faith as the first national vocations director at the archdiocese of the military in Washington, an effort that he believes will eventually benefit the military.

There's a shortage of catholic chaplains in the military. Who better to fill that need than former service members who become priests?

Father Richard Erikson at the Archdiocese of Boston is also an air force chaplain reserve.

REV. RICHARD ERIKSON, VICAR GENERAL, ARCHDIOCESE OF BOSTON: When you think what have our catholic airman soldier, sailors, marines are sacrificing to be there, they deserve priests, they deserve the sacrament.

LOTHIAN: This air force vet understands that need and hopes to one day return to the military as a chaplain.

ERIKSON: They resonate much more deeply.

LOTHIAN: Finding recruits for god and country.

LAWRENCE KORB, FORMER ASSISTANT DEFENSE SECRETARY: The key issue here is, is this going to be good for the military, good for the soldiers, and good for the Catholic Church, and it seems if it's done right, it can profit all three of them.

LOTHIAN: Father McLaughlin says even though the military is an ideal pool to find future priests, and deal with the clergy shortage, he knows there will be some big challenges, that, as he put it, only God can handle.

(END VIDEOTAPE)

MALVAEUX: Democrats starting to change their minds on offshore drilling. Lou Dobbs has been keeping an eye on all of this.

Good to see you, Lou. Tell us what this is all about.

LOU DOBBS, CNN ANCHOR: Good to see you, Suzanne.

Well, it's sort of interesting. It's interesting that the national media has not made much of Senator Obama's flip-flop, if you will, his evolved position. As you recall, you cover his campaign, absolutely adamant that there would not be offshore oil drilling in this country, or drilling as well for natural gas, of course, offshore. He changed his mind, and put both Senator Harry Reid, the senate majority leader and House Speaker Nancy Pelosi on, in a difficult position because they were supporting him as well saying no offshore oil drilling. In fact, Nancy Pelosi, you may recall, Suzanne, she's trying to save the planet. She can't be bothered with little things like the working man and woman in this country and their household budget who are getting hit so hard, so painfully by these rising prices.

Well, last night she changed her mind on Larry King, just as I predicted, 30 days ago, that both Senator Obama and the leadership of both the congress and the senate would have to do. They've done it now.

MALVAEUX: Lou we'll be keeping an eye for all the developments and arguments on both sides. Thanks, Lou.

DOBBS: You betcha.

MALVAEUX: Happening now, breaking news, Georgia and Russia sign off on a cease-fire deal, after five days of brutal fighting. This hour, Georgians remain defiant against Moscow's show of force and their dispute over land has not been resolved.

The U.S. is sending Russia a stern message about its aggression. President Bush and the man who want his job, are they on the same page? The best political team is standing by.